FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

U.S. stocks were mixed on Friday as investors reacted to the highest annual increase in core inflation in more than three years and a slight drop in oil prices, placing the brakes on February's enormous rally.

he Dow Jones Industrial Average lost 58.82 or 0.35% to 16,638.47, while theNASDAQ Composite index added 8.26 or 0.18% to 4,590.47, amid gains among technology and pharmaceutical stocks. The S&P 500 Composite index, meanwhile, fell 3.67 or 0.19% to 1,948.04, as six of 10 sectors closed in the red. Stocks in the Basic Materials industry led, while stocks in the Utilities sector lagged.

The Dow and S&P 500 turned negative late in the session after crude futures pared earlier gains on Friday afternoon. Despite the slight losses, the major indices gained roughly 2% on the week. U.S. stocks have responded to a massive sell-off over the first six weeks of 2016, with one of their strongest two-week rallies over the last year.

On Friday morning, the U.S. Commerce Department reported that its Personal Consumption Expenditure (PCE) Index jumped by 1.3% in January from its level 12 month earlier, an improvement of 0.7 from December's reading. The Core PCE Index, which strips out volatile food and energy prices, rose by 0.3% from the previous month, extending monthly gains from December. On a yearly basis, Core PCE surged by 1.7% from its level in January, 2015, also 0.3% higher from December's reading. Separately, the Commerce Department upwardly revised Real GDP growth in the fourth quarter to 1.0%, from initial estimates of 0.7%.

While the strong economic data could provide a boost to the major indices, it also bolstered the chances the Federal Reserve could raise short-term interest rates in the coming months as Core PCE inflation moves toward its targeted goal of 2%.

Any rate hikes this year are viewed as bearish for stocks, as investors exit their positions in equities in favor of higher yields in bond markets.

The top performer on the Dow was EI du Pont de Nemours and Company (N:DD), which added 1.19 or 1.97% to 61.61. DuPont finished just above Boeing Company (N:BA), which gained 1.66 or 1.42% to 118.48, amid heavy short covering late in the session. Earlier,Forbes reported that the aircraft manufacturer replaced Wal-Mart Stores Inc (N:WMT) as the 13th highest shorted component on the Dow. Boeing (N:BA)'s shares retreated earlier in the week after its chief rival Airbus reported a surge in new orders for the first quarter.

Coca-Cola Company (N:KO) finished as the worst performer after losing 2.31% to 43.14, following a late sell-off. Coca-Cola finished just below Wal-Mart, which fell sharply amid reports from the Wall Street Journal that the world's largest retailer cut more than 100 jobs from its corporate office in Bentonville, Arkansas this week. Shares in Wal-Mart lost 1.47 ot 2.15% to close at 66.58.

The biggest gainer on the NASDAQ was Baidu Inc (O:BIDU), which surged 16.08 or 10.16% to 174.30, after the Chinese search engine posted better than expected earnings with its fourth quarter results.The worst performer was Intuit Inc (O:INTU), which lost 4.22 or 4.22% to 95.85, falling off one-month highs from Thursday's session. The California-based tax preparation software company surged above 100 a session earlier, after beating quarterly expectations amid rising demand ahead of April's filing deadline.

The top performer on the S&P 500 was Marathon Oil Corporation (N:MRO), which gained 0.64 or 8.59% to 8.03. A bevy of energy companies were among the top performers on the S&P, as Ensco, Transocean and CHK all closed up by more than 5%. The worst performer was Southwestern Energy Company (N:SWN), which fell 0.38 or 5.61% to 6.39. Shares in Southwestern Energy are down by more than 75% over the last year.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 1,871-1,168 margin.

The dollar strengthened after preliminary data showed that U.S. gross domestic productgrew 1.0% in the fourth quarter, compared to a previously reported 0.7% growth rate and expectations for a 0.4% rate.

Data also showed that personal spending rose 0.5% in January, beating expectations for a 0.3% gain, after an increase of 0.1% in December.

In addition, the University of Michigan said its index of consumer sentiment rose to 91.7 in February from 90.7 the previous month, compared to expectations for an increase to 91.0.

In Japan, data earlier showed that Tokyo's consumer price index rose at an annual rate of 0.1% in February, compared to expectations for a 0.3% fall and after a 0.3% slip the previous month.

Tokyo's core CPI, which excludes fresh food, ticked down 0.1% this month, confounding expectations for a 0.2% fall and after a 0.1% decline in January.

In the euro zone, preliminary earlier data showed that Germany's CPI ticked up 0.4% in February, disappointing expectations for a 0.5% rise, after a 0.8% fall the previous month. Year-on-year, consumer prices were flat, compared to expectations for a 0.1% gain.

The dollar was also higher against the pound, with GBP/USD down 0.51% at 1.3891 and with USD/CHF advancing 0.69% to 0.9972.

Sterling remained under pressure as concerns over a potential Brexit lingered.

Several senior members of Prime Minister David Cameron's Conservative party, including London Mayor Boris Johnson, said this week that they will be backing the campaign to leave the EU, in a blow to his plans to remain in the bloc.

Meanwhile, the Australian and New Zealand dollars were weaker, with AUD/USD down 0.97% at 0.7166 and with NZD/USD sliding 0.65% to 0.6680.

Gold fell sharply on Friday after the Federal Reserve's preferred gauge for inflation rose by its highest annual percentage in more than three years, augmenting hawkish sentiments for accelerated normalization in the U.S. central bank's first tightening cycle in nearly a decade.

On the Comex division of the New York Mercantile Exchange, gold for April delivery traded in a broad range between $1,212.10 and $1,240.90 an ounce before settling at $1,220.20, down 18.60 or 1.51% on the session. Despite the considerable losses, the precious metal has still soared by more than 14% since the start of 2016 and is on pace for one of its strongest opening quarters in nearly 30 years.

Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,260.80, the high from Feb. 11.

On Friday morning, the U.S. Department of Commerce in a monthly report said that personal income and consumer spending surged by 0.5% in January, both eclipsing consensus' estimates. Driven by sizeable increases in wages and salaries, personal incomerose for the third time in four months, building on strong gains from December. Consumer spending, meanwhile, moved steadily higher paced by a 1.2% spike in durable goods purchases.

More tellingly, the Personal Consumption Expenditure (PCE) Index jumped by 1.3% in January from its level 12 month earlier, an improvement of 0.7 from December's level. TheCore PCE Index, which strips out volatile food and energy prices, rose by 0.3% from the previous month, extending monthly gains from December. On a yearly basis, Core PCEsurged by 1.7% from its level in January, 2015, also 0.3% higher from December's reading.

While Core PCE inflation has remained under the Fed's targeted objective for every month over the last three years, January's reading hit the high end of the central bank's central tendency estimate for 2016. Fed chair Janet Yellen has continually reiterated that long-term inflation will continue to move toward the Fed's targeted goal of 2%, as temporary factors from a stronger dollar and record-low energy prices recede. At the Federal Open Market Committee's (FOMC) December meeting, the committee projected in its median forecasts that inflation will not reach 2% until 2018.

When the FOMC meets again next month, the committee will release its quarterly long-term economic projections, also known as its "dot-plot." The assessment includes long range projections for changes in Real GDP, unemployment, inflation and the Fed's benchmark interest rate. Since the FOMC ended a seven-year zero interest rate policy in December, threats of a global economic slowdown and extreme volatility in financial markets worldwide have prompted the U.S. central bank to reconsider its pace of tightening. The FOMC followed by holding the target range of the Federal Funds Rate at a level between 0.25% and 0.50% at a subsequent meeting in late-January.

But with the labor market nearing full employment, the strong inflation figures could compel the Fed to reconsider the timing of its next interest rate hike. In its January statement, the FOMC emphasized that it will continue to employ a data-driven approach when deciding whether it is appropriate to lift interest rates.

"A data-driven Committee, making decisions meeting by meeting, is likely to surprise markets from time to time," Fed governor Jerome Powell said at a speech before the U.S. Monetary Policy Forum on Friday morning.

Following the release of the monthly inflation data, the CME Group's (O:CME) FedWatch tool increased the probability of a June rate hike to 30.3%, up from 19.7% a day earlier. There is also a 49.3% chance that rates will remain unchanged for the rest of the year, according to the tool, down from 78.6% on Thursday.

Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.80% to an intraday high of 98.29. The index reached its highest level in nearly three weeks.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery plummeted 0.425 or 2.80% to 14.745 an ounce.

Crude futures closed slightly lower on a volatile, see-saw day of trading, reacted to a sharp decline in U.S. oil rigs last week and comments from Venezuela's oil minister on a meeting next month between OPEC and Non-OPEC members that could result in an output freeze by four major producers.

On the New York Mercantile Exchange, WTI crude for April delivery wavered between $32.67 and $34.66 a barrel before settling at $32.78, down 0.29 or 0.88% on the day. Although WTI crude halted a three-day winning streak, it still closed higher for the second consecutive week. Since falling to 13-year lows at $26.05 on February 11, U.S. crudefutures have rebounded by approximately 15%.

On the Intercontinental Exchange, brent crude for April delivery traded between $34.73 and $36.99 a barrel before closing at $35.10, down 0.19 or 0.54% on the session. At session-highs, North Brent sea futures reached their highest level since early-January. Brent futures are up by roughly 10% since briefly dropping below $30 a barrel in mid-February.

Meanwhile, the spread between the international and U.S. benchmarks of crude stood at $2.32, above Thursday's level of $1.99 at the close of trading.

Investors on Friday continued to react to comments from Eulogio Del Pino, a day after the Venezuelan oil minister reiterated that OPEC will host a meeting next month to discuss a potential production freeze among a group of major exporters. The summit, Del Pino, told broadcast network Telesur, will include 10 nations, including Saudi Arabia, Russia and Qatar. The aforementioned trio, as well as Venezuela, agreed in principle to an agreement last week, in which the four nations have pledged to limit their production this year to levels reached in January.

The pact could help stabilize cascading oil prices, which have tumbled more than 70% as top producers have saturated the market with a glut of oversupply in an effort to dominate market share. Crude futures have also crashed more than $40 a barrel since OPEC rattled markets in November, 2014, by maintaining its production ceiling above 30 million barrels per day as part of an apparent strategy to crowd out high-cost U.S. shale producers.

Earlier this week, Russia energy minister Alexander Novak cautioned that the low price cycle could last through 2017 if the so-called Doha Agreement is not adopted by the four nations. It followed bearish remarks from Saudi Arabian counterpart Ali al-Naimi, who emphatically told an audience at the CERAWeek Energy Conference in Houston that the kingdom will not lower production from its January total. Both Russia and Saudi Arabia are pumping oil at near-record levels, above 10 million barrels per day.

Oil services firm Baker Hughes said Friday that U.S. oil rigs fell by 13 to 400 for the week ending on Feb. 19, marking the 10th straight week of such declines. The U.S. oil rig count is at its lowest level since December, 2009. The U.S. Energy Information Administration (EIA) said on Wednesday that production dipped by 33,000 to 9.102 million last week, falling for the fifth consecutive week.

While U.S. shale producers have demonstrated resiliency over the last 15 months by drilling efficiently, major reductions in the rig count are viewed as a lagging indicator of falling production.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.80% to an intraday high of 98.29. The index reached its highest level in nearly three weeks.

Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.

U.S. natural gas futures fell to a fresh two-month low in North America trade on Thursday, after data showed U.S. natural gas supplies in storage fell much less than expected last week.

Natural gas for delivery in April on the New York Mercantile Exchange sank 7.8 cents, or 4.25%, to trade at $1.756 per million British thermal units by 15:35GMT, or 10:35AM ET after hitting a daily low of $1.752, a level not seen since December 18. Prices were at around $1.790 prior to the release of the supply data.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended February 12 declined by 117 billion cubic feet, much less than expectations for a decline of 139 billion.

That compares with draws of 158 billion cubic feet in the prior week, 220 billion cubic feet in the same week last year and a five-year average of around 137 billion.

Total U.S. natural gas storage stood at 2.584 trillion cubic feet, 23.8% higher than levels at this time a year ago and 22.4% above the five-year average for this time of year.

Some market experts worry there may be too much gas left in storage at the end of March when utilities traditionally start injecting the fuel back into storage for the next winter.

Meanwhile, updated weather forecasts called for mild weather in the U.S. northeast through the first week of March. The heating season from November through March is the peak demand period for U.S. gas consumption.

Natural gas futures are down nearly 23% so far this year as a warmer-than-normal winter due to the El Niño weather pattern has limited the amount of heating days and reduced demand for the fuel.

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet